Adds analyst comments in paragraphs 8-10

BEIJING, Feb 12 (Reuters) - China's largest chipmaker SMIC 0981.HK said the market for its staple mature-node chips could be oversupplied in the second half of 2025, tempering optimism about a recovery from a post-pandemic slump.

Semiconductor Manufacturing International Corp focuses on established chips for consumer electronics and home appliances which enjoyed a demand surge during stay-at-home policies of the COVID-19 pandemic, but which suffered as consumer replacement demand tailed off with people returning to offices.

Advanced chips such as those found in Huawei Technology's HWT.UL smartphones represent only a marginal portion of revenue. SMIC has never confirmed it produces Huawei chips.

"We face two major concerns for the second half of 2025. First, we expect order volume to decline as demand has been pulled forward to the first half," co-CEO Zhao Haijun told analysts on Wednesday following the release of fourth-quarter earnings.

Secondly, new production capacity across the industry will likely trigger intensified price competition as manufacturers compete for orders, Zhao said.

SMIC reported October-December revenue of $2.2 billion, up 31.5% on year and in line with market expectations of $2.18 billion, LSEG data showed. It forecast first-quarter revenue to grow by 6% to 8% from the previous quarter.

SMIC shares rose as much as 6% in Hong Kong trading on Wednesday before paring gains.

The market optimism partly reflected the broader rally in Chinese stocks, driven by DeepSeek's success in developing cost-effective large language models for artificial intelligence $(AI)$ tasks, said Stewart Randall, an analyst at Shanghai-based consultancy Intralink.

Investors are betting that AI development might not require the most advanced chips, potentially benefiting domestic chipmakers such as SMIC, according to Randall.

The positive share movement also reflects SMIC's strong first-quarter outlook, Randall added.

SMIC co-CEO Zhao cited strong domestic demand during the current quarter, driven by China's consumer stimulus measures that boosted sales of TVs and smartphones using its chips.

CAPEX STEADY

U.S. export controls restricting access to advanced chipmaking technology have seen Chinese chip firms including SMIC focusing on the mature-node segment, gaining market share from established players such as Taiwan's Powerchip 6770.TW.

SMIC has ramped up investment to expand production capacity and strengthen China's domestic semiconductor capability.

Its capital expenditure surged to $7.3 billion in 2023 from $4.5 billion in 2021, and it maintained that level with $7.33 billion in 2024, its financial results showed. Spending will be around $7.5 billion in 2025, co-CEO Zhao told analysts.

Gross profit margin, however, shrunk to around 20% in 2023 from more than 30% in the two years prior.

It improved to 22.6% in October-December versus 16.4% in the year-earlier period.

Zhao forecasts profitability will remain under pressure in 2025, with depreciation costs rising by 20% due to capital expenditure.

Profit attributable to owners of SMIC reached $107.6 million in October-December versus analysts' estimate of $193.45 million, LSEG data showed.

(Reporting by Liam Mo and Brenda Goh; Editing by Louise Heavens, Christopher Cushing and Muralikumar Anantharaman)

((liam.mo@thomsonreuters.com;))